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1
ROLE OF FII IN STOCK MARKET
A PRESENTATION BY :
SAURABH MAHESHWARI
NCMP
2
Road Map for Presentation
Introduction to Stock Market
Introduction to Foreign Investment
FII in Indian Stock Market
Advantages & Disadvantages of FII
Conclusion
3
Introduction to Stock Market
4
WHAT IS STOCK MARKET ? A place where stocks, debentures or
other securities are bought & sold An association of stock brokers who
meet to buy and sell stocks according to fixed regulations
The market in which shares are issued and traded through stock exchange
It is under Capital Market Segment
5
CLASSIFICATION OF STOCK MARKET
STOCK MARKET
PRIMARY MARKET SECONDARY MARKET
WHERE SECURITIES ARE SOLD FOR THE
FIRST TIME
WHERE PREVIOUSLY
ISSUED SECURITIES ARE BOUGHT & SOLD
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ORGANIZATIONAL STRUCTURE & COMPONENTS OF STOCK MARKET
IndividualsCorporationsInstitutions
BanksGovernment
Supply of Money Capital
InvestorsLenders
1.New Issue Market2. Stock Exchange
3. Financial Institution
Intermediaries & Clearing House
IndividualsCorporationsInstitutions
EntrepreneursGovernment
Demand for Money Capital
Borrowers
7
INVESTMENT INSTRUMENTS IN STOCK MARKET
EQUITY SHARE DEBENTURES OPTIONS ETF (EXCHANGE
TRADED FUND) FUTURES
8
MEDIUM OF INVESTMENT IN STOCK MARKET
Investment through Broker
Investment through Mutual Funds
Investment through SIP
Investment through Portfolio Managers
9
PARTICIPANTS IN STOCK MARKET
TRADER INVESTOR JOBBER SPECULATOR ARBITRAGEUR BROKER DII FII
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Introduction to Foreign Investment
FOREIGN INESTMENT
WHAT IS FOREIGN INVESTMENT?
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Investment by foreign countries on behalf of Foreign Investor
Investment in the form of FDI
Investment in the form of FII
OVERVIEW OF FDI
FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts
Foreign Direct Investment is investment of foreign assets into domestic structures, equipments, and organizations.
It does not include foreign investment into stock market
12
OVERVIEW OF FII
FII stands for Foreign Institutional Investor, denotes all those investors or investment companies that are not located within the territory of the country in which they are investing
“SEBI”’s definition of FII presently includes foreign pension funds, mutual fund etc as well as asset management companies and other money managers operating on their behalf
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DISTINCTION BETWEEN FDI & FII
It is Long-Term Investment
Investment in Physical Assets
Aim to increase enterprise capacity or productivity or change management control
It is generally Short-Term Investment
Investment in Financial Assets
Aim to increase capital availability
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Investment
Assets
Aim
DISTINCTION CONTINUES……. FDI flows into
the primary market
Entry & Exit relatively difficult
FDI is eligible for profits of the company
FII flows in secondary market
Entry & Exit relatively easy
FII is eligible for capital gain
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Market
Entry & Exit
Purpose
DISTINCTION CONTINUES……. Does not tend
to be speculative
Direct Impact on employment of labor & wages
Tends to be speculative
No Direct Impact on employment of labor & wages
16
Speculation
Impact
FII REGISTRATION PROCESS
17
FII INVESTMENT PROCESS
18
FII in Indian Stock Market
19
REGISTERED FIIs IN INDIA FROM 2006 TO 2011
20*DATA HAS TAKEN FROM SEBI
OVERVIEW OF FIIs IN INDIA 2011
21
FIIs NO COUNTRIES
TOTAL NO OF FIIs IN INDIA 1731 47
*ALL DATA HAS TAKEN FROM SEBI
SR. NO COUNTRY NAME FIIs IN INDIA
1UNITED STATES OF AMERICA 575
2 UNITED KINGDOM 2043 LUXEMBOURGE 1174 MAURITIUS 1055 HONGKONG 806 SINGAPORE 777 CANADA 778 AUSTRALIA 649 IRELAND 62
10 GREAT BRITAIN 44
TOTAL 1405
WHAT ARE FIIs LOOKING FOR ?
Demand Potential Good Projects Revenue Potential Stable Policy Optimal Risk
Allocation Framework
Rate of Interest Spectulation Profitability Economic
Condition Government
Policies Political Factors
22
FACTORS AFFECTING FII?
INVESTMENT LIMITS ON EQUITY & DEBT INVESTMENT
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FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company.
Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company.
For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital.
These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed by Government of India / Reserve Bank of India.
INVESTMENT LIMIT CONTI……..
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investment limits on debt investments by FIIFor FII investments in Government debt, currently following limits are applicable:
100 % Debt Route US $ 1.55 billion70 : 30 Route US $ 200 millionTotal Limit S $ 1.75 billion
For corporate debt the investment limit is fixed at US $ 500 million.
FII INVESTMENT FROM 2000 TO JUNE 2011
25
SENSEX VS FII 2000 TO 2011 (JUNE 2011)
26
YEARS
FII NET INVESTMENT (RS. IN CR.)
SENSEX
2000 6370 5934
2001 13294 4036
2002 3647 3363
2003 30792 3370
2004 38698 6026
2005 45808 6420
2006 31281 9472
2007 70940 14182
2008 -53051 20827
2009 85367 9323
2010 134292 17540
2011 -2548 18860
SHAREHOLDING PATTERN OF FII AT THE END OF MARCH 2011 FOR COMPANIES LISTED AT NSE
27
PROS & CONS OF FII
28
PROS OF FII
Enhance Competition & efficiency of financial market
Enhanced flow of equity capital improves capital structures towards building the investment gap
Financial innovation and development of hedging instruments
Improve Capital Markets
29
Cons of FII Problem of Inflation : Huge
amounts of FII fund inflow into the country creates a lot of demand for rupee, and the RBI pumps the amount of Rupee in the market as a result of demand created.
Problem for Small Investor : The FII buying pushes the stocks up and their selling shows the stock market the downward path. This creates problems for the small retail investor, whose fortunes get driven by the actions of the large FIIs.
30
CONCLUSION The Indian stock market has come of age and
has substantially aligned itself with the international order.
Market has also witnessed a growing trend of 'institutionalization' that may be considered as a consequence of globalization.
It is influence of the FIIs which changed the face of the Indian stock markets. Screen based trading and depository are realities today largely because of FIIs.
31
CONCLUSION CONTI…..
FIIs are the trendsetters in any market. FIIs have started playing a critical role in the
movement of stock prices A positive contribution of the FIIs has been
their role in improving the stock market infrastructure.
The FIIs are playing an important role in bringing in funds needed by the equity market.
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